The refinery is operating at two locations; main processing facility is located at Korangi Creek with supporting crude berthing and storage facility at Keamari. The initial design capacity of the refinery was to process 1 million tons of crude oil annually, which was subsequently expanded to 2.1 million tons per annum.
Shareholding at PRL Shares of PRL are largely held by associated companies and related parties, and these include oil marketing companies. Where Chevron Global Energy has only one percent of the shareholding, Shell Pakistan, PSO and Hascol together hold over 70 percent of the shares at PRL. General public that includes foreign and local shareholders hold over 20 percent of PRL's share; the breakdown of the two is not given in the published accounts.
Past performance
Previous years had been tough on PRL that saw its earnings and margins dip in the negative zone. This was seen especially in FY14 when the refining margins for hydro-skimming refineries remained low due to sharp increase in crude oil prices and weak demand for products worldwide. And as margins dwindled due to high cost and working capital requirements, the local refining industry including PRL's profits took a toll.
Though FY15 brought improvement in profit margins for PRL, it still wasn't a good year for the refinery segment. Issues highlighted above continued to linger, which along with steep decline in crude oil and product prices resulted in heavy inventory losses. PRL saw a 36 percent year-on-year decrease in its top line along with increased finance cost that resulted in after tax losses. This aggravated the negative equity situation of the firm.
This situation of negative equity had been an issue for PRL since 2010. In FY15 the board of directors announced a right issue at par to meet the capex and financial requirements of its projects. The highlight of FY15 was PRL finally commissioning its much awaited isomerization plant that converts low-value naphtha into gasoline (petrol), a premium product, doubling its petrol production.
Since then, PRL started on a recovery mode. Despite a fall in the top line due to lower oil prices. Earnings became positive due to healthy gross refinery margins (GRMs) and the doubling of production of motor gasoline given the full year operation of the new isomerization unit.
The right-issue in FY15 and the firm's commissioning Isomerization plant played a key role in reducing the firm's reliance on bank borrowing and increasing operational liquidity. In FY17, PRL saw its PAT improve by more than three times, which also brought some reduction to the negative equity. However, during the year, the refinery faced the deactivation of the catalyst of the isomerization plant, which reduced the firm's petrol production from 20,000 metric tons to 15,000 metric tons.
Financial performance FY18 The recovery that was seen in earnings in the last couple of years took a rebound in FY18 as PRL's profit after tax halved despite a healthy growth of 32 percent in the company's revenues. However, the company overcame the negative equity situation that it had been facing for long.
Refining margins remained depressed during the year, which put pressure on gross profitability. Also, the catalyst of isomerization plant that was impaired FY17 could not be operated at full capacity from July to November 2017, which resulted in short production of petrol by 22,000 metric tons, the company's annual accounts highlight.
Higher exchange losses due to currency depreciation and pressure on refinery operation due to decline in furnace oil demand amid its curtailment strategy by the government, and hence the buildup of stock pile also affected the refinery's performance in FY18.
1HFY19 and beyond PRL's earnings continued to recede in 1HFY19. The firm ended up in a loss in 1HFY19 versus 1HFY18 in its recently announced result where more than proportionate increase in cost of sales nullified the growth in PRL's top line. The staggering decline in gross refinery margins was due to the decline in petrol prices, a key product for PRL, as well as significant inventory losses due to furnace oil curtailment going on in the downstream oil and gas sector. Furthermore, the firm's profitability was adversely affected by currency depreciation, which resulted in exchange losses for the refinery. And apart from exchange losses, interest expense could also have significantly pushed up the finance cost as the firm obtained term finance facilities under mark-up arrangements from Askari Bank Limited and Bank Alfalah Limited amounting to Rs1 billion and Rs2.5 billion respectively, at a mark-up of 3 month KIBOR + 0.5 percent per annum for a tenor of 3 years.
Refineries are urged to speed up their expansion and up gradation projects as furnace oil curtailment continues and higher fuel standards wait to be adopted along with high prospects for international competition.
And PRL has come forward as the first local player to announced plans to invest $1 billion in converting its refining facility into a deep conversion refinery that convert furnace oil into petrol and high-speed diesel, thus minimizing the production of furnace oil.
It also plans to speed up its work on DHDS unit. PRL has been working on its Diesel Hydro Desulphurization Unit (DHDS) unit to produce EURO II compliant HSD. However, the firm could not meet the installation deadline of June 30, 2017, which exposed the refinery to downward revision of HSD pricing due to higher sulphur content.
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PAKISTAN REFINERY LIMITED (PRL): Financial Ratios
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FY12 FY13 FY14 FY15 FY16 FY17 FY18
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Gross margin % 0.02 1.48 -0.50 -0.74 3.07 3.68 1.13
Net margin % (1.27) 0.38 (0.61) (1.30) 0.44 1.51 0.55
EBITDA margin % (0.24) 1.34 (0.05) (0.67) 3.43 4.13 2.42
CFO to sales % 1.41 -5.21 2.42 -0.06 -1.66 6.22 -0.49
Debtor turnover Times 8.29 8.38 14.66 12.31 11.32 14.46 15.72
Creditor turnover Times 4.82 5.21 7.79 5.07 5.33 7.98 9.70
Inventory turnover Times 15.06 13.84 13.83 12.09 11.83 11.3 12.73
Total assets turnover ratio Times 3.72 4.82 4.93 2.96 2.61 2.7 3.02
Fixed assets turnover ratio Times 28.00 25.85 19.19 7.52 5.35 5.71 6.86
(Loss)/Earning per share Rs (7.40) 2.27 (3.96) 0.93 3.45 1.64
Cash dividend per share Rs 0 2.85 0 0 0.31 0 0.00
Interest cover ratio Times (1.24) 4.87 (0.47) (1.27) 1.56 3.57 2.52
Current ratio Ratio 0.89:1 0.86:1 0.76:1 0.67:1 0.60:1 0.65:1 0.79:1
Quick ratio/acid test ratio Ratio 0.63:1 0.42:1 0.39:1 0.34:1 0.30:1 0.30:1 0.40:1
Cash to current liabilities Ratio -0.004:1 -0.297:1 0.081:1 0.105:1 0.029:1 0.034:1 0.027:1
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Source: Company accounts
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Pattern of Shareholding-PRL (As at June 30, 2018)
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Shareholder's Category Percentage
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Directors, Chief Executive Officer, and their spouse and minor children 0.03%
Associated companies, undertakings and related parties 71.85%
Chevron Global Energy Inc. 0.9%
Hascol Petroleum Limited 14.7%
Pakistan State Oil Company Limited 24.1%
Shell Petroleum Company Limited 32.1%
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Others
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NIT and ICP 2.06%
Banks, Development Financial Institutions, Non-Banking Financial Institutions 0.28%
Insurance Companies 2.28%
Modarabas and Mutual Funds 0.25%
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General Public :
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(a)Foreign 20.14%
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(b)Local
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Others 3.11%
Total 100%
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Source: Company accounts
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PAKISTAN REFINERY LIMITED
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Rs (mn) 1HFY19 1HFY18 YoY 2QFY19 2QFY18 YoY
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Net sales 54,625 39,553 38.1% 29,116 21,096 38.0%
Cost of sales 56,515 38,611 46.4% 31,050 20,970 48.1%
Gross lo profit/ (loss) (1,890) 942 (1,934) 126
Distribution cost 117 102 15.2% 61 51 18.3%
Administrative exp 213 177 20.2% 126 98 28.8%
Operating profit/ (loss) (2,141) 659 (2,084) 8
Finance cost 607 254 139.4% 379 133 185.1%
Profit/ (loss) after taxation (3,006) 145 (2,589) (203) 1173.4%
Earnings per share (Rs/share) (9.78) 0.47 (8.42) (0.66) 1175.8%
Gross margin -3.46% 2.33% -6.64% 0.60%
Operating margin -3.92% 1.67% -7.16% 0.04%
Net margin -5.50% 0.37% -8.89% -0.96%
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Source: PSX